Bond markets co-movement dynamics and macroeconomic factors: Evidence from emerging and frontier markets

- We examine bond market co-movement dynamics and macroeconomic factors
- Macroeconomic factors play an important role in bond market co-movement dynamics
- Domestic macroeconomic factors are of higher relative importance than global factors
- Domestic monetary policy and inflationary environment are the most important factors
- Global bond market uncertainty have explanatory power in driving co-movement dynamics

This paper examines the co-movement dynamics of ten emerging and four frontier government bond markets with the US market and the impact of macroeconomic factors and global bond market uncertainty on the time-varying co-movement. We find that macroeconomic factors play important role in explaining time variations in the bond return co-movement. Specifically, domestic macroeconomic factors have higher relative importance than global factors, with domestic monetary policy and domestic inflationary environment identified as the most influential factors. The global bond market uncertainty, based on an implied volatility measure, has explanatory power in driving co-movement dynamics in emerging and frontier bond markets.